Originally written by Karen Pollitz, then at the Georgetown University Health Policy Institute. Updated by Deborah Chollet and Allison Barrett, Mathematica Policy Research, and Bill Erwin, Alliance for Health Reform. Last updated October 2012 by Marilyn Werber Serafini.

This chapter was made possible by the Robert Wood Johnson Foundation.

FAST FACTS

19 million people under age 65 were covered by an individual health insurance policy in 2011, according to a report by the U.S. Census Bureau.1

By 2019, this number is expected to growto 24 million due to provisions in the federal health reform law, the Patient Protection and Affordable Care Act (ACA).2

Individual health insurance is different from job-based coverage. Currently, it is regulated differently, and those who buy individual coverage receive neither an employer contribution to the cost of coverage nor the same tax exclusion of premium payments as people with job-based coverage enjoy.

Currently, most individual policies are medically underwritten, meaning insurers can deny or restrict coverage, or charge higher premiums because of an applicant’s medical history.3 Rules governing medical underwriting differ from state to state.

Under the Affordable Care Act, insurance companies cannot limit or deny benefits or coverage for “pre-existing” conditions for a child younger than age 19.4 This went into effect on September 23, 20105

The ACA will substantially change the individual coverage market in the United States, eventually ending medical underwriting and eliminating higher premiums charged because of a person’s medical history.

Premiums and out-of-pocket costs are usually more affordable in tax-advantaged employer plans than in individual-market plans.6 However,the individual market offers flexibility and choices, and participants can avoid “job lock.”7 Some employees find lower premiums in the individual market.8

Also starting in 2014, the ACA will require almost all Americans to have health insurance. Health insurance exchanges will help consumers compare prices and policies and obtain subsidies to buy coverage, if their income is less than four times the federal poverty level and they cannot get coverage from their employer or a public coverage plan, such as Medicaid.

Administrative expenses and profit for individual policies can account for a much larger share of premiums than in group plans.

The ACA created a temporary, federally subsidized high-risk insurance program in every state, but only individuals who have been uninsured for at least six months can enroll. Apart from these temporary pools, 34 states make coverage available to people who have trouble buying individual coverage because they have health problems.

BACKGROUND

Because of the Patient Protection and Affordable Care Act of 2010 (ACA), the world is changing for people who want to buy health insurance on their own in the individual market (or who have tried unsuccessfully to do so in the past). No longer can insurers refuse to cover children with pre-existing conditions. Anyone with a pre-existing condition can now buy coverage at more reasonable rates through a state-level high-risk pool, if they’ve been uninsured for at least six months.

In 2011, 30.2 million people, including 19 million people under age 65, bought health insurance in the individual market, according to a report by the U.S. Census Bureau.9 10 In general, people turn to the individual market for coverage when they don’t qualify for job-based health benefits or public programs. While only about 8 percent of all people under age 65 have individual health insurance in a given year,11 this percentage will grow because of provisions in the ACA noted in the Fast Facts above and in the section on “Federal Reform of Individual Coverage” below.

People of all ages have individual coverage. According to America’s Health Insurance Plans (AHIP), a trade association, 40 percent of single policies were held by people aged 45-64 in 2009; 37 percent were held by people between 25 and 44 years old; and 23 percent were held by people aged 24 and under.12

Currently, because insurers in most states can deny or restrict coverage to adults, or charge a higher premium because of an adult applicant’s medical history (a practice called medical underwriting), people who buy individual health insurance tend to be in good health.13

The average monthly premium paid for individual policies in 2011 was $183, while the average premium paid for family policies was $414.14 The amounts employees were responsible for in employer sponsored coverage averaged $77 for single coverage and $344 for family coverage.15 In 2009, the average non-group policy for one person was 38 percent less expensive than the average employer-sponsored policy, according to AHIP. Family coverage was 53 percent less expensive when purchased on the non-group market.16

Non-group policies are cheaper in part because they generally offer less coverage than employer-sponsored or other group policies. One study of the individual market in 10 states found that individual policies paid 66 percent of medical costs for beneficiaries’ covered services in 2007, compared with 80 percent in employer-based plans.17

Another study found that individual market insurance policies in California paid for just 55 percent of the expenses for covered services in 2006, compared to 83 percent for small group health plans.18 Deductibles in individual policies were about three times as large as in employer-based plans.19 (See glossary for the definition of “deductibles.”) Individuals can put money into tax-free health savings accounts (HSAs) to help pay out-of-pocket expenses, if their policy qualifies as a “high deductible health plan” under federal law. (See Chapter 4, “Employer-Sponsored Coverage,” for more on HSAs.) A graph of age distribution of people covered by HSA/HDHPs in the Individual Market, which provide coverage for 11.4 million people, as of January 2011 is included below.20

Premiums vary considerably by age. A chart of individual premiums in 2009 categorized by age is provided. (See chart, “Individual Market Premiums by Age). The average annual premium for individually-purchased single coverage in 2009 was $1,350 for those under age 18 and $5,755 for those age 60 to 64.22

Premiums also vary by state. The range of average per person monthly premiums in the individual market across the United States in 2010 falls between $136 in Alabama and $437 in Massachusetts.23 Nationally, the average monthly premium per person in the individual market in 2010 was $215.24 Vermont and Massachusetts both had average per member per month premiums over $400 per month.25 The average premium revenues in Rhode Island, New York, and New Jersey were comparably high, ranging from $344 to $364 per month.26 Alabama ($136), California ($157), Arkansas ($163), Idaho($167), and Delaware ($169) had the lowest average monthly premiums in the country.27

Because states regulate individual insurance, consumer protections in this market currently depend largely on where one lives. Today, insurance companies in most states can reject adult applicants outright, exclude coverage for certain conditions or charge higher premiums based on their health status., 28 (The ACA already prohibits the first two of these practices when applying for children’s coverage, and in 2014, they will be outlawed for all applicants.29 )

Current federal law requires insurers in every state to renew individual coverage regardless of the policyholder’s health status.30 But in some states insurers can employ various rating and marketing practices to raise the price of coverage for policyholders who get sick. As of 2011, in just seven states – Maine, Massachusetts, New Jersey, New York, Idaho, Vermont, and Washington – individuals were protected against all underwriting actions both when they first applied for coverage and when they renewed, according to the Kaiser Family Foundation.31 Oregon, Rhode Island, Utah, and West Virginia guaranteed protection against some underwriting action.32 The District of Columbia and Virgina offered insurers of last resort.33 The latest information on specific states can be found here. Regulations protecting consumers come with a price, however. For instance, “community rating” regulations limit the degree to which premiums can differ for different types of people. In its most stringent form, community rating requires that the old pay the same premium as the young for an equivalent policy, and the sick pay the same premium as the healthy.

A 2008 study found that community rating raises premiums by 10 to 17 percent for individual policies in the non-group market, and 21 to 22 percent for family policies.34 This will change in 2014 when provisions of the ACA affecting individual coverage go into effect, as discussed below.

Now, when applicants are denied individual coverage, charged higher premiums or offered fewer benefits because of health problems, they can turn to a state high-risk pool to buy coverage. The ACA requires that in temporary high-risk pools that the legislation created, insurers can’t charge applicants more than a person without a pre-existing condition would pay in the individual market. In order to apply, a person must have been uninsured for at least six months and must be a U.S. citizen or legal immigrant.35 (See “Federal Reform of Individual Coverage” below.)

CURRENT LACK OF SUBSIDIES

Many individuals and families with directly-purchased health insurance have low incomes. In 2009, 5.6 million people with household incomes of less than $25,000 had non-group private coverage.36

Individual coverage is not subsidized through the tax code as job-based coverage is. Families must pay the entire premium, without employer contributions or extensive income tax breaks. The federal government provides a health coverage tax credit to subsidize individual coverage for a few thousand eligible early retirees and certain workers who lose their jobs because of foreign competition.37

Otherwise, twelve states—Arizona, Conneticut, Indiana, Maine, Massachusetts, New Mexico, New York, Oregon, Tennessee, Utah, Vermont and Washington State — now subsidize premiums to help low-income residents buy individual health insurance.38 (Beginning in 2014, all states will offer subsidies, as described in the next section.)

Because the ACA allows states to extend Medicaid coverage now to all residents under 133 percent of the federal poverty line (and requires all states to do so by 2014), these states may instead choose to offer Medicaid to many individuals in those subsidy programs.

Individual CoverageCHANGES EFFECTIVE IN 2010-2011

The ACA establishes many new protections for consumers buying individual coverage. The first of these became effective in 2010 and on Jan. 1, 2011; others take effect in 2014. Ultimately, the ACA will fundamentally restructure the individual market in every state.

A temporary federally-approved high-risk pool is now open in every state for individuals who are denied coverage because of a health problem and have been uninsured at least six months. Enrollees in these high-risk programs pay the same premiums that healthy people would pay on the individual market and out-of-pocket costs are limited. Premiums are not scaled to income.39

In September 2010, individuals gained basic protections in both current and new policies:40

·Insurers may not place lifetime limits on amounts paid for covered services, nor place unreasonable annual limits on these amounts.

·Insurers must cover pre-existing conditions for dependents under age 19.

·Dependent children may remain on a family policy until they turn 26.

In January 2011, additional protections took effect:

·Insurers can spend no more than 20 percent of individual premiums on administrative costs and profit, refunding any excess to policyholders. (Amounts spent on actual care are termed “medical loss” and the percentage of premiums spent on care is the “medical loss ratio.”)

·Individual policies issued subsequent to the ACA’s enactment (March 23, 2010) must cover a standard set of preventive services without cost sharing.

CHANGES EFFECTIVE IN 2014

In 2014, the individual market will undergo major change:

·“Deductibles will be limited for health plans in the small group market to $2,000 for individuals and $4,000for families unless contributions are offered that offset deductible amounts above these limits. The deductible limit will not affect the actuarial value of any plans.”41

·Insurers must accept all applicants and cover pre-existing conditions for new and current policyholders. They can vary premiums only by the individual’s age, geographic location, and tobacco use, and for single versus family coverage.42

To prevent healthy people from waiting until they need health care to buy insurance, increasing premiums for everyone, nearly all U.S. residents will be required to maintain coverage. (This is the widely publicized and debated “individual mandate” in the law.) Exceptions will be given for financial hardship and religious objections, and to American Indians, people who have been uninsured for less than three months, those for whom the lowest cost health plan exceeds 8 percent of income; and those with an income below the tax filing threshold.43

·States will create “exchanges” where individual consumers can compare premiums for policies of similar value and buy coverage.

·Individuals who buy coverage through an exchange can qualify for a premium subsidy if their income is below four times the federal poverty line and they are ineligible for an employer plan or public program.44 These individuals will spend no more than 10 percent of income on premiums. (For an example of how subsidies would work if we were already in 2014, see table “Maximum premium payments for coverage bought on exchanges under the ACA.” All new policies must cover “essential benefits” (including maternity and newborn care, mental health and substance abuse services, and prescription drugs), and annual out-of-pocket costs will be capped.45

Maximum premium payments for coverage bought on exchanges under the ACA, based on 2010 poverty guidelines

The ACA’s requirement that individuals maintain health insurance coverage is an essential component of individual market reform. As of 2014, insurers must accept all applicants and cannot use medical underwriting, waiting periods for pre-existing conditions or coverage exclusions.

If not required to buy health insurance, say those who support the individual mandate, individuals will be very tempted to buy coverage in this market only when they are sick. If this happens, premiums will be higher for everyone, making it harder for individuals and families to afford coverage and more costly for government to subsidize premiums. Critics of the individual mandate worry that it will establish a precedent for social policy more generally.

Even though health reform is now law, the individual mandate remains controversial, and 26 states sued to block the law.46 Federal district court judges in Virginia and Florida ruled that the individual mandate is unconstitutional. Three other district court judges, in Virginia, Michigan, and the District of Columbia, ruled that the mandate meets constitutional requirements. Two appeals courts upheld the mandate, while a third held it to be unconstitutional. The U.S. Supreme Court settled the matter on June 28, 2012, allowing the requirement for most people to purchase health insurance.

IMPACT OF REFORM ON INDIVIDUAL PREMIUMS

The ACA will change the way insurers set individual premiums. By 2014, premiums will no longer reflect individual health status, and the oldest individuals will pay no more than three times what the youngest pay for the same policy.

In most states, where insurers are allowed to charge a higher premium for those in poorer health, and greater variation in premiums based on age is currently allowed, premiums for young and healthy individuals might increase in 2014, if their income is too high to qualify for the premium subsidy. Other requirements – that insurers accept all applicants, establish reasonable annual limits on coverage, and eliminate lifetime limits, preexisting-condition waiting periods, and benefit exclusions – are likely to further increase premiums for the youngest and healthiest individuals.

Advocates of these reforms (when taken together with income-scaled premium subsidies) see them as essential components of an individual insurance market that is accessible, affordable and fair over the course of individuals’ lifetimes. Critics are concerned that these reforms create a market that relies too heavily on government to make it work.

TIPS FOR REPORTERS

Keep in mind differences between individual and group health coverage. If you haven’t reviewed the employer-sponsored coverage chapter of this sourcebook, you will find that useful.

Expand time horizons. Snapshots reveal differences in health insurance products and prices at a point in time, but this can change. Are the low premiums offered for some policies stable, or do they increase over time? Do covered benefits and deductibles change?

You will find state-by-state information on individual health insurance regulations at www.healthinsuranceinfo.net, a service of the Georgetown University Health Policy Center. Personal stories of people who have had problems with their health insurance will help you understand the motivation for the ACA’s individual market reforms, and why many people would be upset if the movement to repeal the ACA were to succeed. Try the Families USA Consumer Story Bank (call 202-628-3030, or e-mail storybank@familiesusa.org). The Alliance for Health Reform’s Find-an-Expert service also can help reporters find such individuals (www.allhealth.org/reporter_enroll.asp or 202-789-2300.)

STORY IDEAS

New high-risk poolplans– How many people in your state have signed up for the high-risk pool created by the Accountable Care Act? Try using Craigslist, Facebook, Twitter or other social networking sites to find people to interview. Are state officials encouraging enrollments, or ignoring the pool as a protest against the ACA? If they’re encouraging enrollments, are theysatisfied with the pace of sign-ups?

Individual mandate – What do people in your area think of the individual mandate in the ACA? Do they get the connection between requiring (almost) all to have coverage and having coverage available to the uninsurable at affordable rates?

Exclusions from the mandate. Who are the people in your area who will not be required to purchase insurance in 2014, and how many will there be? Are they mostly low-income individuals? Are there particular religions that will object? If people with exemptions don’t qualify, they won’t have to purchase insurance, but will they qualify for public programs such as Medicaid, or will they remain uninsured? How will they get access to health care?

Guaranteed issue for children with pre-existing conditions – How are insurers in your area reacting to the provision in the ACA that prevents them from using a pre-existing condition as a reason to refuse coverage to children? Are they using this provision as a rationale for raising rates? What difference is the provision making for children in your area who were previously not eligible for individual coverage because of a pre-existing condition?

Self-employed workers and early retirees –What is the experience of self-employed workers and early retirees who rely on individual health insurance? How does medical underwriting work? Which benefits are covered, and which are excluded? What does the coverage cost when first purchased? Does this change over time, especially when they get sick or age into a higher rate class?

Renewal practices – What happens now when individuals renew their policies? Do insurers in your market use “durational rating,” so that the same policy costs more to renew than to purchase initially? Do policyholders try to moderate premium increases by increasing deductibles or dropping important benefits?

Explore coverage adequacy – How well do different policies pay for medical bills of policyholders who become sick, injured, or pregnant? What do providers do when a patient’s insurance doesn’t cover a needed service?

Regulatory capacity – Who is your state insurance commissioner? How many staff work for her/him to regulate health insurance?Does the insurance commissioner review and question insurers about proposed premiums or premium increases? Does s/he approve rates, or can insurers charge premiums without approval?

EXPERTS

Analysts/Advocates

Drew Altman, President and CEO, Kaiser Family Foundation, 650/854-9400

Most researchers believe Census data overstate the number of individual market participants, for example, by including in the count people with multiple sources of coverage. Others estimate the individual market to cover only about 14 million people. See, for example, “How Private Health Coverage Works: A Primer, 2008 Update” by the Kaiser Family Foundation at www.kff.org/insurance/upload/7766.pdf).

3Medical underwriting is the process by which insurers assess the health and risk status of applicants. Applicants for a medically underwritten individual health insurance policy might be turned down, charged more, or offered a policy that permanently excludes coverage for their pre-existing condition.

37The early retirees are those ages 55 to 64 who receive pension payments from the federal Pension Benefit Guaranty Corporation because their former employers went bankrupt or for other reasons can no longer pay these pensions. The trade-dislocated workers are those certified by the U.S. Department of Labor as having lost their jobs because of competition by foreign firms and who either receive Trade Adjustment Assistance cash payments or would qualify for such payments were it not for their receipt of unemployment insurance payments. See: Dorn, Stan (February 2008). “Health Coverage Tax Credits: A Small Program Offering Large Policy Lessons,” Urban Institute. (http://www.urban.org/publications/411608.html).

42 Plans would also be allowed to offer a premium discount if enrollees participate in wellness programs. Congressional Research Service (2010), “Private Health Insurance Provisions in Senate-Passed H.R. 3590, the Patient Protection and Affordable Care Act,” March 12.

Even as many states gear up for tougher insurance regulations under the federal health law, Maine lawmakers last year bucked the trend, loosening rules they blamed for some of the highest premiums in the nation.

Now a group wants to create the state’s first health insurance cooperative called Vermont Health Co-op. The federal government will give the initiative a big boost — a $33.8 million loan to cover startup costs.

Gov. Robert Bentley is waiting for the U.S. Supreme Court to rule on the national health care law and could create a health insurance exchange by executive order or within an existing state agency if the law is upheld.